MYSay: Time to revisit the worldview in our economic thought

This article first appeared in Forum, The Edge Malaysia Weekly, on November 9, 2020 - November 15, 2020.
MYSay: Time to revisit the worldview in our economic thought
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In perhaps one of the greatest ironies, Klaus Schwab, the founder of the high priest of neoliberalism, the World Economic Forum, wrote recently about the need to move away from the neoliberal ideology that underpins our modern economy.

In his Great Reset vision, a theme emphasised in the recent edition of Time magazine, he called for a re-evaluation of “capitalism” as we know it today and a reset of our economics, politics and societies as a response to the savage impact of Covid-19. This would entail an entirely new thinking to address inequality in its many forms, ensure economic and social security and tackle climate change.

For the uninitiated, this would have been transformative, if not revolutionary. But for students of economic history, it is an idea repeated at every moment in times of economic crisis since the Great Depression of 1929.

In 1933, under the New Deal introduced by US President Franklin Roosevelt to fix the wiring of capitalism after the crash, a multitude of far-reaching programmes aimed at alleviating poverty, closing the economic gap and guaranteeing jobs to millions of Americans affected by the crisis were initiated.

Within 100 days of his presidency, Roosevelt proposed unemployment assistance, engaged in economic development focusing on the most backward regions, introduced regulation on minimum wages and instituted workers’ right to unionise and strike.

Given that the US’ commitment to free-market capitalism was imbedded in its culture and a subject enshrined in the constitution, his proposals were deemed too radical, earning him the nickname “Stalin Roosevelt”.

Instead of back-pedalling, he pushed further with what historians called “the most consequential piece of legislation of the century”, the social security law, which would provide a permanent welfare scheme for Americans.

It was a feat that would be repeated in the 1960s when President Lyndon Johnson launched his Great Society initiatives that ushered in massive poverty elimination programmes, education funding and greater access to healthcare.

However, despite the penetrating impact of the socio-economic reforms that would seem to turn the economy into serving society rather than just capitalists, “capitalism” would in time veer to its pre-crisis norms marked by greed and selfishness, deregulation and limited government, shareholders’ supremacy and plutocracy.

And the pendulum swung from one crisis to another, turning it into a vicious cycle that finally saw a sovereign nation — Greece — go bankrupt and brought the Western world to its knees in the global financial crisis in 2008. The swing happened not just because of the constant change in social attitude, but largely owing to the shift in policy paradigm driven purely by ideologies — left and right, conservative and liberal.

As an idea that includes forsaking shareholders’ primacy, a concept deeply ingrained in modern capitalism, the Great Reset promises a new economic approach. Like all the bold socio-economic initiatives in the past, it would influence how we draft policies and might bring about a far-reaching impact to the society.

But unless we depart from the entire worldview that shapes our economic thinking, the transformation in policy, no matter how extensive, would not result in changing how the economy works in the long term.

In Western economic thought, the worldview was formed through hundreds of years of philosophical ideas of its thinkers, scholars and men of commerce on the nature of man and society, the purpose of human life and its relationship with the environment.

The classical economic thinking of Adam Smith promoted a system that balances the pursuit of “self-interest” with the role of the state to ensure public well-being. It served as a powerful antidote to the excesses of the neoliberal ideas of Friedrich Hayek and Milton Friedman, who viewed the market as sacrosanct and should be left alone to operate without any intervention from the state.

But Smith’s ideas of capitalism, despite their wholesome foundation, had been constructed based on his understanding of the nature of man developed by the earlier Enlightenment thinkers such as Thomas Hobbes and John Locke.

As such, the notion that men are by nature free and always act in their self-interest and should be allowed the freedom to pursue their self-interest is central to the economic system envisioned by Adam Smith.

On their own, there is nothing wrong with concepts borne out of capitalism such as free market, competition, privatisation, free trade and globalisation. However, because they exist behind a worldview that gives prominence to the limitless pursuit of self-interest and to what we could achieve in this world, devoid of any moral and ethical considerations, they are bound to be exploited to the extreme and become fodder for one economic crisis after another.

Being a European and exposed solely to the global order dominated by ideas developed over the course of 500 years since the Age of Enlightenment, it would be impossible to expect Klaus Schwab to challenge the validity of the worldview that shaped his thinking.

But for us as a society familiar with different thoughts and traditions, it might be useful to acknowledge that there exist alternative worldviews that could offer credible solutions to our economic predicaments.

Nazim Rahman works in private equity and is head of the Asia Parliamentary Network on the World Bank and IMF’s secretariat

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